APRA fires shot across banks’ bows

Posted on September 11, 2013 by | 0 Comments

From the Financial Review

The opening stanza in the Australian Prudential Regulation Authority’s “macro-prudential” campaign to cauterise any credit-fuelled housing bubble has arrived, as predicted by The Australian Financial Review.

APRA is anxious deposit-takers will relax lending standards to foster faster credit growth in a bid to maintain our banking system’s internationally high profitability. And it is concerned these decisions may be encouraged by the cheapest borrowing rates in history and a nascent housing boom.

House prices in Sydney are up 8.5 per cent in the first eight months of 2013 according to RP Data. Nationally, auction clearance rates are back to exuberant 2009 levels.

APRA doesn’t pull its punches, cautioning that “a prolonged period of low rates can lead to rising leverage and housing market pressures, with potential flow-on impacts on the credit quality of loan portfolios”.

It notably highlights that in New Zealand, Norway, Sweden and Switzerland, regulators have already adopted “pre-emptive measure[s]” to force banks to “build up capital as imbalances in the credit (housing) market develops, which can then be used to help absorb potential future losses”. I expect APRA will inevitably follow suit.

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